Consider Municipal Bonds Instead of Treasuries
One of the big issues that affects Treasury investors is the idea that on some short-term bonds, the yield is 0%. This means that the government is borrowing money for free, and that lenders aren’t earning money in interest. Long-term yields are still above 0%, but that may not last too much longer. And besides, with a Fed rate cut expected today, the situation regarding U.S. government bonds isn’t likely to improve.
Municipal bonds offer higher returns that Treasuries
If you are looking to invest in the relatively safe category of government debt, you might consider local debt rather than federal debt. Municipal bonds are cheaper and offer higher returns, reports The Street:
The whole game in the bond market right now is whether a particular issue is being backed by the U.S. government — you know, the taxpayer. So if you’re going to play the “government-backed angle” for bond investments, why not go for cheaper municipals? They, too, are government-backed. I know that states can’t print money like the federal government can, but, still, they are part of the government, and it’s hard to imagine the feds would bail out Wall Street and corporate America but not the states.
One of the reasons that people invest in government bonds is because it is reasonably safe, and because the returns — although usually small when compared with other investments — beat inflation. It’s considered a good way to reduce the risk associated with the decreasing value of money. Unfortunately, with Treasury yields near or at 0%, all these investments do right now is preserve principal. There’s no return, and no beating inflation.
Municipal bonds are higher risk than federal bonds, so you should be careful.
Disclaimer: I am not an investment professional. Nothing in this piece or on this Web site should be construed as investment advice. Before making investment decisions, do your own research and/or consult with an investment professional. All investment comes with the risk of loss. You are responsible for your own investment decisions and any loss that may result from your decisions.
December 19th, 2008 at 12:12 pm
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December 23rd, 2008 at 9:27 am
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